Prices of goods and services do not adjust immediately in response to changing demand and supply conditions. This paper characterizes the average frequency and size of price changes in the euro area and its member countries, investigates the determinants of the probability of price changes, and compares the evidence for the euro area with available U.S. results. The facts documented in this paper are based on evidence from individual price data recorded at the store level in all euro area countries except Ireland and Greece: that is in datasets covering Austria, Belgium, Finland, France, Germany, Italy, Luxembourg, the Netherlands, Portugal, and Spain, which together account for around 97 percent of euro area GDP. The data used are the monthly price records underlying the computation of national Consumer Price Indices and Harmonized Consumer Price Indices. These data cover a large number of products selected on the basis of extensive Household Budget Surveys.

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We use Portuguese firm-level data to investigate whether changes in resource misallocation may have contributed to the poor economic performance of some southern and peripheral European countries leading up to the Eurozone crisis. JEL classification: D24, O11, O41, O47

In this paper we use two rich micro-datasets on Portuguese …rms to analyse the ability of time and state dependent price setting rules to explain durations of price spells, or the probability of price changes. Our results suggest that time dependent models are unable to adequately describe the features of the data and that state dependent models are required to fully characterise the price setting behaviour of these …rms. Speci…cally, it is found that the impacts on the probability of a price change of in ‡ation, the level of economic activity and the magnitude of the last price change, are both statistically and economically signi…cant. Moreover, it is seen that the impacts di¤er for negative and positive values of these covariates.JEL classi…cation codes: C41, D40, E31.